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iogann1982 [59]
3 years ago
13

Under the terms of his salary agreement, president Steve Walters has an option of receiving either an immediate bonus of $77,000

, or a deferred bonus of $98,000 payable in 10 years.
Ignoring tax considerations and assuming a relevant interest rate of 4%, which form of settlement should Walters accept?
Business
2 answers:
In-s [12.5K]3 years ago
8 0

Answer:

Immediate bonus of $77,000

Explanation:

Given the following

Immediate bonus = $77,000

Differed bonus = $98,000

Rate = 4%

Duration = 10

$66,205 deferred bonus

$77,000 immediate bonus

Calculating the differed bonus

We have

=$98,000 x 0.67556= $66,205

Present value of deferred bonus

= $66,205

He has a choice of collecting either an immediate bonus of $77,000, or collect a deferred bonus of $66,205 payable in 10 years

The best option for Walters is to collect an immediate bonus now

gulaghasi [49]3 years ago
5 0

Answer:

$66,205 deferred bonus

$77,000 immediate bonus

Explanation:

$98,000 discounted at 4% for 10 years

=$98,000 x 0.67556= $66,205

Present value of deferred bonus $66,205

Walters has an option of receiving either an immediate bonus of $77,000, or a deferred bonus of $66,205 payable in 10 years

Therefore Walter should accept the bonus of $77,000 now.

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Annual Compound Formula is:

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